U.S. Employment Gain to Brazil Contraction: Global Economy

By Carlos Torres -
Dec 1, 2013

Data this week will probably
highlight a divergence in global growth. Employers in the U.S.
hired more workers in November, and the government in the U.K.
may raise its economic forecast for the first time in three
years. Conversely, Brazil’s economy may have contracted in the
third quarter for the first time in two years.

U.S. PAYROLLS

-- Employment rose by 183,000 workers last month after a 204,000
gain in October, putting the world’s largest economy on track to
show the biggest payroll gain this year since 2005, according to
the median forecast of economists surveyed by Bloomberg before a
Dec. 6 report from the Labor Department. The jobless rate fell
to 7.2 percent, matching a five-year low, from 7.3 percent, the
survey also showed.

-- A bigger-than-projected increase in October payrolls raised
the odds that the Federal Reserve would begin to trim its
monthly bond purchases as soon as this month, according to
economists such as Joseph LaVorgna. “Another month of solid job
gains (inclusive of revisions) increases the probability that
policymakers will taper when they meet at the December 17-18
FOMC meeting,” the chief U.S. economist at Deutsche Bank
Securities in New York said in a note. LaVorgna forecasts
payrolls increased by 185,000 last month.

-- Central bankers may want to wait a little longer to cut back,
even if employment continues to grow, according to James Marple,
a senior U.S. economist at Toronto-Dominion Bank in Toronto.
“Outside of a crisis, the Fed has never changed policy course
at the end of December,” Marple wrote in a research note.
“Moreover, while job growth is holding up, real GDP growth is
likely to decelerate in the fourth quarter. Given a still high
level of uncertainty around fiscal policy, this will likely be
enough to forestall the Fed into the New Year.”

U.K. FISCAL PLANS

-- Chancellor of the Exchequer George Osborne will unveil new
economic forecasts during his Autumn Statement in Parliament on
Dec. 5. For the first time since 2010, his fiscal watchdog is on
course to raise rather than lower its growth predictions, while
the economic revival is boosting tax receipts and helping
Osborne beat his budget targets.

-- “The chancellor is going to enjoy delivering the Autumn
Statement significantly more than similar exercises in previous
years,” said Philip Shaw, an economist at Investec Bank in
London. “However, he is likely to effuse an optimistic rather
than a celebratory tone, partly because the job of delivering
sustainable borrowing is nowhere near complete and that downside
risks remain.”

EURO-AREA INTEREST RATE

-- The European Central Bank will probably keep its benchmark
rate at a record-low 0.25 percent on Dec. 5 after cutting it by
a quarter-point in November, citing low inflation. The decision,
though, doesn’t mean that last month’s loosening was the last
step from ECB President Mario Draghi, according to Peter Vanden Houte at ING Bank NV in Brussels.

-- “The recovery has legs, though there are clearly still
financing problems in peripheral countries,” Vanden Houte said
in a Nov. 28 note. “With Draghi more or less suggesting that
the ECB won’t tolerate deflation in adjusting countries as part
of their rebalancing process, it means that the ECB will have to
conduct its monetary policy geared to the weakest link. That
suggests that the rate cut was probably not the final move from
the ECB.”

BRAZIL GDP

-- Brazil’s economy probably contracted 0.3 percent in the third
quarter, according to the median estimate of economists surveyed
by Bloomberg before the national statistics institute releases
data on Dec. 3. That would be the first time the economy has
shrunk in two years.

-- “The news that the economy is not growing reflects the
negative moods toward the country,” Enestor dos Santos,
principal economist at Banco Bilbao Vizcaya Argentaria, said by
telephone from Madrid. “If you have a contraction, there’s no
way to highlight something positive.”

-- While Brazil may contract in the third quarter, the outlook
has improved from a few months ago, according to Roberto Padovani, chief economist at Votorantim Ctvm Ltda. “Economic
data as a whole has been a bit better than expected and the
government has adopted more cautious speech regarding economic
policy,” Padovani said by phone from Sao Paulo.

CHINA MANUFACTURING

-- In China, a gauge of manufacturing from HSBC Holdings Plc and
Markit Economics to be released tomorrow may show factories
slowed down in November. The figure would contrast with a
greater-than-forecast gain in the Purchasing Managers’ Index
reported today by the National Bureau of Statistics and China
Federation of Logistics and Purchasing.

RESERVE BANK OF AUSTRALIA

-- The central bank will probably keep its benchmark interest
rate unchanged at a record-low 2.5 percent when it meets on Dec.
3 for the final time this year as policy makers reiterate
concern its currency remains too strong. The following day,
government data may show economic growth slowed in the third
quarter from a year earlier as the currency’s strength impedes a
rebalancing away from a mining investment-led expansion.

-- “We would expect RBA officials to continue their verbal
assault on the currency in coming months,” Sally Auld, a
Sydney-based interest-rate strategist at JPMorgan Chase & Co.,
said in a research report. “But we also think there is a good
chance the RBA might back up its words with action; this could
occur by executing a modest rise in the Bank’s foreign exchange
reserves. This will be something to keep an eye on.”

NORWAY’S INTEREST RATES

-- Norway’s central bank on Dec. 5 probably will keep its
benchmark interest rate at 1.5 percent and revise its policy
rate path down as inflation remains weaker-than-expected by
Norges Bank, according to Goldman Sachs Group Inc.

-- “We expect Norges Bank to push back its planned first hike
from around the summer of 2014 to the autumn of 2014,” Lasse Holboell Nielsen, executive director at Goldman in London, said
in an e-mailed note. Norway’s underlying inflation rate fell
from 2.5 percent in August to 1.7 percent in September before
rising to 1.9 percent in October.